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Depositors flock to PSU banks

india Updated: Jan 27, 2009 20:57 IST
Devraj Uchil
Devraj Uchil
Hindustan Times
Depositors flock to PSU banks

The “flight to safety” has seen deposit growth of foreign and private sector banks contracting sharply. The deposit growth of foreign banks has fallen to 12.1 per cent from 34.1 per cent a year ago and that of private sector banks to 13.4 per cent from 26.9 per cent a year ago.

Public sector banks have gained as individuals preferred them for putting money into fixed deposits over foreign and private sector banks. The growth in deposits of public sector banks, which account for about 70 per cent of the banking system, was however flat at 24.2 per cent.

Public sector banks have reduced their lending rates by a larger margin that foreign and private sector banks since October 2008, but bankers fear that a rush to extend loans could lead to piling up of non-performing assets (NPAs). The RBI in its third quarter monetary policy review prodded banks to reduce lending and deposit rates to the extent of the policy rate cuts in the last four months.

The prime lending rates (PLRs) of public sector banks have been reduced by the highest margin of up to 150 basis points. Private sector banks have reduced their PLRs by just 50 basis points, while foreign banks have not changed their PLRs at all. On the deposits front, public sector banks have reduced

Despite slowdown, public sector banks have been out-performing private and foreign banks. This has been mostly due to the safe ground they were confined to by stringent RBI norms than anything else.

Expansion of credit by public sector banks has been much higher this year, while credit expansion by foreign and private sector banks was significantly lower. Credit growth in PSU banks climbed by 8.8 per cent at the time when foreign and private sector banks saw it limited to 13.8 per cent and 12.4 per cent respectively.

Annual growth of deposits in public sectors banks remained unchanged at 24.2 per cent while foreign banks saw a huge fall from 34.1 to 12.1 per cent and deposits in private banks fell from 26.9 per cent to 13.4 per cent.

“It does not pay to be over confident or pessimist in this situation,” said Jitender Balkrishnan, Deputy Managing Director of IDBI Bank. “Banks in India have been adopting cautious approach and are well capitalised. They are also watched closely by the RBI, saving them from going the way their foreign counterparts have,” he said.